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States and Economic Development
Atul Kohli
Princeton University
An earlier version of this paper was presented to the world wide meeting of The Ford
Foundation’s unit on Governance and Civil Society in Sao Paulo, Brazil, November, 1-2,
2007.
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Today the Washington Consensus on development lies in tatters. The recent
history of the developing world has been unkind to the core claim that a nation that opens
its economy and keeps government’s role to a minimum invariably experiences rapid
economic growth. The evidence against this claim is strong: the developing world as a
whole grew faster during the era of state intervention and import substitution (1950-1980)
than in the more recent era of structural adjustment (say, 1990-2005); and the recent
economic performance of both Latin America and Sub-Saharan Africa—regions that
truly embraced neoliberalism—has lagged well behind that of such Asian economies as
China, India, and Vietnam, which have instead pursued judicial and unorthodox
combinations of state intervention and economic openness (Amsden, 2007). No wonder
that the World Bank itself (2005) recently announced the death of the Washington
Consensus, offered an overt mea culpa, and wondered aloud, where do we go next?
While the disintegration of the Washington Consensus raises serious “sociology of
knowledge” questions about who pushed these ideas, why, who benefited, and who
should now be held responsible, my focus in this essay is more strictly on intellectual
issues of logic and evidence that help us understand the political and economic conditions
of development success and failure.
The Washington Consensus on development rested on two prior scholarly claims:
first, the experience of the developing world with state-led economic growth (say, from
1950 to 1980) was a disaster; and second, that “globalization” (say, post-OPEC,
especially following the second hike in oil prices in 1981) changed the rules of the
economic game so significantly that states had few alternatives but to embrace all out
economic openness. As scholars and policy makers reconstruct alternatives to the
Washington Consensus on development, it is important to reevaluate both of these major
claims. How exactly does one evaluate the role of the state in development in the postsecond World War period? Has “globalization” really changed the global political
economy so fundamentally that all out openness is the only alternative for developing
countries? These are critical, controversial, and huge scholarly issues. In what follows,
I synthesize some recent scholarship to argue that the answer to both of these questions is
more complex than was assumed by the proponents of the Washington Consensus. I
draw on my own recent book (Kohli, 2004 or SDD) to revisit the role of the state in
economic development, and on a variety of other sources, including Stiglitz (2002) and
World Bank (2005) to question the claim that there is no alternative to all out openness.
The argument below instead is that prudent and effective state intervention and selective
integration with the global economy have been responsible for development success in
the past; they are also likely to remain the recipes for upward mobility in the global
economy in the future.
I.
State-Directed Development
My recent book SDD was a strong rebuttal of the claim that state intervention in the
developing world was responsible for development failures. Building on the works of
such scholars as Chalmers Johnson (1982), Robert Wade (1990), Alice Amsden (1989),
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and Peter Evans (1995), I claim in SDD that both successful and failed attempts at
industrialization in the developing world are best understood with reference to the
economic role of more or less effective states. Well constructed “developmental” states,
such as in East Asia, especially South Korea, facilitated rapid industrialization via both
import substitution and export promotion. By contrast, many states in sub-Saharan
Africa, especially Nigeria, which were poorly constructed and personalistic, failed at both
import substitution and export promotion. In between these extreme types of states can
be found a variety of more “mixed’ states—such as in Brazil and India—that produced
some notable successes, but also some pronounced failures. It is my argument in SDD
then that the way state power is organized and used has decisively influenced rates and
patterns of industrialization in the global periphery.
State Types: In SDD I identified three ideal-typical historical patterns of how state
authority is organized and used in the developing world: neopatrimonial states; cohesivecapitalist states; and fragmented-multiclass states. In addition to centralized and coercive
control over a territory, a defining characteristic of all modern states is a well-established
public arena that is both normatively and organizationally distinguishable from private
interests and pursuits. Unfortunately, for a variety of historical reasons, this distinction
between the public and the private realms was never well established in a number of
developing country states, especially African states. As a result, a number of distorted
states emerged with weakly centralized and barely legitimate authority structures,
personalistic leaders unconstrained by norms or institutions, and bureaucracies of poor
quality. These states are labeled here as neopatrimonial because, despite the façade of a
modern state, public officeholders tend to treat public resources as their personal
patrimony. These are therefore not really modern, rational-legal states. Whether they are
organized as a nominal democracy or as a dictatorship, state-led development under the
auspices of neopatrimonial states has often resulted in disaster, mainly because both
public goals and capacities to pursue specific tasks in these settings have repeatedly been
undermined by personal and narrow group interests. Of the cases I analyzed, Nigeria best
exemplified this ideal-typical tendency.
Cohesive-capitalist and fragmented-multiclass states are two of the other idealtypical states to be found in the contemporary developing world. The more effective
modern rational-legal states in the developing world tend to vary mainly along two
dimensions: cohesion of state authority and the state’s class commitments. The
cohesive-capitalist states, sometimes called developmental states, are situated opposite
neopatrimonial states on the political effectiveness continuum. These states are
characterized by cohesive politics, that is, by centralized and purposive authority
structures that often penetrate deep into the society. For a variety of historical reasons
these states have tended to equate rapid economic growth with national security and thus
defined it as a priority. In their pursuit of rapid growth, cohesive-capitalist states have
carved out a number of identifiable links with society’s major economic groups and
devised efficacious political instruments. Especially notable among the social links is a
close alliance with producer or capitalist groups. An important corollary of this political
arrangement is a tight control over labor. The main political instrument of these states is,
of course, a competent bureaucracy. Since a narrow elite alliance between the state and
capital is difficult to hold together, politics within these units has often been repressive
and authoritarian, with leaders often using ideological mobilization (e.g., nationalism
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and/or anticommunism) to win acceptance in the society. Cohesive-capitalist states in
developing countries, such as in South Korea under Park Chung Hee and in Brazil during
both Estado Novo and the military dictatorship, have proved to be relatively successful
agents of deliberate state-led industrialization.
In between the two extremes of political effectiveness defined by neopatrimonial
states on the one end and cohesive-capitalist states on the other end lie fragmentedmulticlass states. Unlike neopatrimonial states, fragmented-multiclass states are real
modern states. They command authority, and a public arena within them is often well
enough established that leaders are held accountable for poor public policies and
performance. Unlike in cohesive-capitalist states, however, public authority in these
states tends to be more fragmented and to rest on a broader class alliance—meaning that
these states are not in a position to define their goals as narrowly or pursue them as
effectively as are cohesive-capitalist states. Leaders of fragmented-multiclass states thus
need to worry more about political support than do leaders of other types of developing
country states. For example, they must typically pursue several goals simultaneously, as
they seek to satisfy multiple constituencies. Industrialization and economic growth may
be an important state goal, but it is only one among others: agricultural development,
economic redistribution, welfare provision, and maintaining national sovereignty. Policy
formulation and implementation, moreover, is often politicized, either because of
intraelite conflicts or because state authority does not penetrate deep enough down in the
society to incorporate and control the lower classes. When confronted by mobilized
opposition, fragmented-multiclass states typically become obsessed with issues of
legitimacy and often find themselves promising more than they can deliver. While not all
fragmented-multiclass states are necessarily democracies, all developing country
democracies with plebiscitarian politics and weak institutions constitute a special subset
of fragmented-multiclass states. The cases of India and Brazil in several periods
exemplify this type of state. Attempting to pursue a complex state-led agenda with
limited state capacities, then, fragmented-multiclass states tend to be middling performers
on numerous dimensions, including the promotion of industrialization and growth.
State Types and Patterns of Industrialization: If authority structures in the developing
world can be variously categorized as neopatrimonial, cohesive-capitalist, and
fragmented-multiclass states, the first ‘big’ question that SDD analyzed was how these
states influence economic outcomes. The nearly exclusive focus in the literature on
appropriate policy choices is incomplete, even misleading. Policy choices matter, of
course, but these choices must be explained. More important, the impact of the same
policy applied in two different settings may vary because of the contextual differences.
Identifying variations in how states are organized and in the institutionalized relationship
of the state to the private sector is a key to understanding the relative effectiveness of
state intervention in the economy. In the cases examined in detail in SDD (South Korea,
Brazil, India, and Nigeria), this relationship varies along a continuum stretching from
considerable convergence in goals to mutual hostility between the state and the private
sector. I argue that, other things being equal, the setting that has proved to be most
conducive (i.e., serves as a necessary but not a sufficient condition) to rapid industrial
growth in the developing world is one in which the state’s near-exclusive commitment to
high growth coincided with the profit-maximizing needs of private entrepreneurs. The
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narrow ruling coalition in these cases was a marriage of repression and profits, aimed at
economic growth in the name of the nation. Cohesive-capitalist states have generally
created such political economies. Turning their countries into state-guided corporations
of sorts, they have tended to be the fastest growers in the developing world.
Growth-oriented cohesive-capitalist states pursued their commitment to high
growth by developing trade and industry with well-designed, consistent, and thoroughly
implemented policies. Specific policy measures varied but were generally aimed at
easing supply-and-demand constraints faced by private entrepreneurs. Some of these
interventions were direct, and others, indirect. On the supply side, for example, we find
that cohesive-capitalist states helped facilitate the availability of capital, labor,
technology, and even entrepreneurship. Thus supply of capital was boosted at times by
superior tax collection and public investment, at other times by using publicly controlled
banks to direct credit to preferred private firms and sectors, and at yet other times by
allowing inflation to shift resources from both agriculture and urban labor to private
industrialists. Repression was also a key component in enabling private investors to have
a ready supply of cheap, “flexible,” and disciplined labor. Examples of less-direct
interventions on the supply side include promotion of technology by investing in
education and research and development, and/or by bargaining with foreign firms to
enable technology transfer.
On the demand side, too, cohesive-capitalist states have pursued a variety of
policies to promote their growth commitment. These have included expansionist
monetary and fiscal policies, and tariffs and exchange-rate policies aimed at boosting
domestic demand. And when domestic demand was not sufficient, these states have just
as readily adopted newer policies that shift the incentives in favor of export promotion or,
more likely, that help promote production for both domestic and foreign consumption.
Despite significant variation in the specific policy measures undertaken by
cohesive-capitalist states, most policies adopted by cohesive-capitalist states reflected a
single-minded and unyielding political commitment to growth, combined with a political
realization that maximizing production requires assuring the profitability of efficient
producers but not of inefficient ones. Sometimes this required getting prices right, but
just as often it required “price distortions,” such as undervaluing exchange rates,
subsidizing exports, and holding wages back behind productivity gains. Cohesivecapitalist states in successful industrializers have thus been pragmatically—and often
ruthlessly—procapitalist, much more than they have been purely and ideologically
promarket.
Perfect coincidence between the goals of the state and those of private elites has
been rare in the developing world, depending as it does on the difficult-to-acquire
political precondition of cohesive state power and a narrow alliance between the state and
capital-owning elites. Instead, many ruling elites governed states with fragmented
political institutions and defined the public good more broadly. The elites pursued (or, at
least, debated) several crucial goals simultaneously: economic growth, redistribution,
legitimacy, and national sovereignty. Policy intervention in these fragmented-multiclass
states was aimed not only at promoting growth but also at enhancing legitimacy and
short-term welfare provision.
Mixed political goals of fragmented-multiclass states had several consequences
for choosing and pursuing development policies. First, ruling elites were less focused in
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these cases on assessing state intervention strictly from the vantage point of growth
consequences. Diffuse goals, in turn, enabled various groups and individuals to capture
state resources for short-term, consumption-oriented benefits. Second, the relationship of
the state to the private sector in such contexts was considerably more complex than in
cohesive-capitalist states, sometimes cooperative but just as often conflictual. And third,
both policy-making and implementation were more politicized, diluting their
unidirectional effectiveness.
Fragmented-multiclass states are thus actually more “normal” than the other two
ideal-typical cases being discussed here. But because the choice of economic strategy
and of policy tools in these cases reflected the logic of both growth and politics, the
institutional setting of fragmented-multiclass states was seldom conducive to achieving
hypergrowth in industry. The case of India supports such a general contention, as do the
cases of Brazil and South Korea in select periods.
Let us consider specific examples of the political economy dynamics of
fragmented-multiclass states. Fragmented-multiclass states were neither more nor less
interventionist than cohesive-capitalist states, but they were generally less effective at
alleviating the supply-and -demand constraints faced by their investors. Again, for
example, when it came to mobilizing capital in many fragmented-multiclass states, taxcollecting capacities were limited, public-spending priorities included numerous goals
other than growth promotion, attempts to direct credit easily evolved into cronyism, and
inflation as a tool of resource transfer could readily become a liability for political leaders
concerned about their legitimacy. Periodic hostility on the part of the state elite toward
private investors made the latter, both domestic and foreign, reluctant to invest.
Repression of labor was also not a ready alternative in fragmented-multiclass states, thus
making it difficult for investors to mobilize a cheap and docile labor force.
On the demand side, monetary and fiscal policies seldom reflected a consistent
growth commitment but fluctuated instead with political cycles characterized by greater
or lesser legitimacy. And finally, tariff and exchange-rate policies adopted to protect the
national economy, and thus to promote demand for indigenous goods, often created
powerful interest groups. As these groups were difficult to dislodge, fragmentedmulticlass states found themselves more rigidly committed to a particular development
path. In sum, fragmented-multiclass states, like cohesive-capitalist states, sought to
promote industrialization, but they did so less effectively because their goals were more
plural and their political capacities less developed. In other words, varying patterns of
state authority decisively influenced developmental trajectories.
According to this line of argument, the worst setting for industrialization on the
periphery was the states that had no clear public goals and whose leaders reduced the
state to an arena for personal aggrandizement. These neopatrimonial states have
unfortunately constituted a significant subset of the developing world. State intervention
in these cases has often been motivated either by the need to build short-term political
support via patronage or by personal greed—or sometimes by both. The relationship of
the state and the private sector in such contexts has just as often been mutually corrupt:
Political instability, inconsistent policies, and pilfering of public resources for personal
and sectional gains have all hurt state-led efforts to promote industry and growth. The
case of Nigeria provides a striking instance of such a development path, though elements
of the same are also evident elsewhere.
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Neopatrimonial states, like cohesive-capitalist and fragmented-multiclass states,
intervened heavily in their economies—but with disastrous results. Neopatrimonial states
often emerged in societies with weak private sectors, but instead of strengthening the
private sector, these states appropriated scarce economic resources and diverted them
everywhere but toward productive investment. Inconsistent economic policies, failure to
support indigenous capitalists, poor-quality but activist labor, and political instability all
reinforced the existing weakness of the national private sector in manufacturing and
industry.
Given this profound weakness of domestic capitalism, neopatrimonial states
sought to undertake economic activities directly or invited foreign goods and producers to
fill the vacuum. Given the state’s nondevelopmental proclivities and organizational
weakness, efforts to produce goods in the public sector generally failed. The remaining
alternative of importing goods or attracting foreign investment only makes sense if there
are alternative sources of income and demand. For a country like Nigeria, oil exports
provided a ready source of income and demand, which was met by foreign goods and
producers; this is less true for other neopatrimonial states. Commodity booms, however,
seldom last forever. The political incapacity to anticipate such cycles, plan for them, and
cut back on imports and public expenditures when circumstances so demand further
aggravate the tragedies of commodity-dependent neopatrimonial states. Given such state
weakness, the question remains, is there a way out of these repetitive cycles of
developmental disasters in neopatrimonial states?
Patterns of State Construction: If goals and capacities of the state, especially as they are
expressed in the institutionalized relationship of the state and the private sector, are
important for understanding relative effectiveness of state intervention, the next logical,
though historically prior question, concerns the origins of this variation itself. Why have
some parts of the developing world ended up with cohesive-capitalist states, others with
neopatrimonial states, and yet others, probably the majority, with fragmented-multiclass
states? This question forces the analysis to take a more historical turn.
While the answer to this question that I develop in SDD is mainly historical, two
theoretical sensibilities shape the analysis. First, institutions are social patterns that only
gel over time and, once gelled, they often endure beyond the forces that brought them
into being. And second, what is true for all institutions is even truer for states because of
collective action problems involved in organizing and reorganizing power and coercion
on a national scale. As a result, basic state forms in the developing world emerged
mainly via a series of infrequent big bangs. The impact of colonialism on state formation
was especially significant because most developing countries states are the product of
colonialism, and their respective forms were molded decisively by this encounter, with
lasting consequences. Two extreme historical examples will illustrate this general point.
South Korea’s cohesive-capitalist state, for example, originated during Japanese
colonial rule, which differed in important respects from the colonialism of the European
powers. As late developers, the Japanese made extensive use of state power for their own
economic development, and they used the same state power to pry open and transform
Korea within a relatively short period of time. The Japanese colonial impact was thus
intense, brutal, and deeply architectonic. Three patterns of what eventually became
South Korea’s cohesive-capitalist, growth-promoting state originated in this period: a
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relatively corrupt and ineffective agrarian bureaucracy was transformed into a highly
authoritarian and penetrating political organization; the state established close and
working production-oriented alliances with the dominant classes; and a well-developed
system of state control of the lower classes was created. Over time, as one would expect,
these structures were battered by numerous new forces and some significant changes
ensued. Nevertheless, the core state-class characteristics endured, eventually providing
South Korea with a framework for the evolution of a high-growth political economy.
By contrast, British colonialism in Nigeria created a highly distorted state that
readily evolved into a neopatrimonial and ineffective set of political organizations.
Britain ruled Nigeria on the cheap, expending as little energy as possible. Within the
shell of a modern colonial state and cloaked in the ideology of indirect rule, the British
essentially utilized various “traditional” rulers to impose order. At its core, colonialism
in Nigeria thus reinforced a pattern of patrimonial and personalistic rule that failed to
centralize authority, to develop an effective civil service, and relatedly, to develop even
such minimal political capacities as the ability to collect direct taxes. The public realm
that came into being was barely demarcated from private and sectional interests in terms
of both culture and organization. After the Second World War, when the colonial state’s
access to resources grew and the state became more and more involved in the economy,
these distorted beginnings were further accentuated, as the state became further enmeshed
in particularistic and personalistic networks. The political elite of sovereign Nigeria were
never able to overcome the original deficiencies of state construction. They simply went
from crisis to crisis, both controlling and wasting the society’s scarce developmental
resources.
The bald emphasis on colonialism as a determinant of state forms in the
developing world of course needs to be qualified. Not all the cases examined in the study
fully fit the argument. The Indian case, for example, more or less fits the argument but,
of course, a popular and powerful nationalist movement was a critical influence on the
development of the postcolonial state in that country. Nevertheless, Indian nationalists
altered the inherited state less than often meets the eye, and the nature of India’s
nationalist movement was itself not unrelated to the character of British colonialism in
India. By contrast, because formal colonialism ended rather early in Latin America, the
argument does not readily apply to a country like Brazil. Even in Brazil, however,
colonialism and other external influences cast a long political shadow. For example, the
power of landed oligarchs, a weak central government with a patrimonial bureaucracy,
and the prevalence throughout the country of decentralized and despotic political units
that rested on patronage and private use of force were characteristics acquired during the
colonial period—characteristics that lingered for at least a century after decolonization
and even beyond. This legacy was overcome, and even then only partially, in the 1930s.
The cohesive-capitalist state of Brazil, moreover, both during Estado Novo (1937–45)
and subsequently under military rule (1964–84), was dominated by a settler colonial elite
and supported by the armed forces. It drew inspiration, if not direct support, from the
outside, that is, from European fascist states in the 1930s and subsequently from the U.S.supported anticommunist, national security doctrines. On the whole then, state
institutions inherited from the colonial past have proved to be “coins that do not readily
melt.” Political and social developments of the first half of the twentieth century were
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thus the mold for the shape and the functioning of developing country states in the second
half of the century.
Power for Development: Power is the currency states use to achieve their desired ends.
Power may be more or less legitimate, and it may be used positively as incentives or
negatively as punishment or threat of punishment. The fact that some states have been
more successful than others at propelling industrialization suggests that successful states
possessed a greater degree of power to define and pursue their goals. Which factors
contribute to developmental power in the hands of states is thus a theoretical theme that
runs throughout SDD, a set of concerns that may also be usefully summarized in this
overview.
Political analysts often think of power in distributional terms: who has it and who
does not. Power in this way of thinking has a zero-sum quality, because, it is believed,
the more power some have in society, the less others will have. Given a liberal
preference for a more even distribution of power, this mode of conceptualizing power
leads directly to comparisons of democracy with authoritarian governments, with a
marked normative preference for the former over the latter. I share this normative
preference and will return to some related issues in the conclusion. An exclusive
emphasis on distribution of power, however, is not very helpful analytically for
understanding variations in state capacity to achieve economic goals, mainly because it
detracts attention from conceptualizing power as a resource that—like wealth—also
grows or withers. Some authoritarian governments are more efficacious at wielding
power than other authoritarian governments; the same may be true of democratic states.
State capacities thus do not vary as a simple function of whether a government is more or
less democratic. It is not surprising that research efforts aimed at clarifying whether
democratic governments are better than authoritarian governments at facilitating
economic growth have remained largely inconclusive.
A full understanding of why some states are more efficacious than others at
facilitating industrial transformation has to be centered around a concept of power as a
societal resource that varies in quantity and can thus grow or decline. Efficacious states
simply have more power at their disposal than less efficacious ones: cohesive- capitalist
states thus command a lot more power to define and pursue their goals than
neopatrimonial states, with fragmented-multiclass states falling somewhere in between
along the continuum. Key determinants of this variation in state power for development
are organizational characteristics of state institutions, on the one hand, and the manner in
which states craft their relations with social classes, especially producer classes, on the
other hand.
More specifically, a narrow commitment to rapid economic development inclines
cohesive-capitalist states to focus on a few critical tasks and to work closely with
producer groups. A competent bureaucracy is generally essential to pursue these political
goals, as well as to cement an alliance with business. Political and economic power thus
reinforce each other and help to move the society rapidly toward state-defined goals. As
noted above, a narrow alliance of state and business elites that hopes to run a country as if
it were a corporation is difficult to hold together, mainly because others in society also
demand representation. If left unchecked, such demands require a state’s attention and
resources and detract from its power to pursue its narrow growth goals. That is why
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cohesive-capitalist states tend to be authoritarian, often reaching deep down into the
society to create well-structured interest groups and thereby minimize political
opposition. Since corporatism may create only a quiescent exclusion and thus may not
add to the state’s overall power, the more ambitious cohesive-capitalist states even
attempt controlled ideological mobilization of popular groups—say, in the name of the
nation—so as to also harness their energies to pursue state goals. Viewed from a liberal
standpoint, such cohesive-capitalist states resemble fascist states of yore, and thus are not
very desirable political forms. Nevertheless, it is these states that have succeeded in
generating considerable power to pursue rapid industrialization in the developing world.
Neopatrimonial states, by contrast, tend to have a weak sense of public purpose,
such that ideology does not play a very significant role. Pronouncements of public goals
are usually cloaks for the pursuit of personal and sectional interests. The organizational
underpinning of neopatrimonial states also tends to be underdeveloped: much of politics
tends to be preclass, interest groups are often not well organized, and public
bureaucracies lack competence and professionalism. Without a coherent ideology and
effective organizations, neopatrimonial states lack developmental power and are rarely
capable of defining and pursuing economic goals. Such economic growth as occurs in
these settings therefore is likely to occur in spite of an ineffective state, rather than as a
result of state action. Economic resources controlled by the state are instead likely to be
put to corrupt use and end up in the hands of elites for private consumption, leading to
failed efforts at state-led development.
Leaders of fragmented-multiclass states generally preside over states in which
power is not highly concentrated, usually not so much because of a deliberate democratic
design as because of weak political institutions that encourage intraelite divisions and
limit a state’s downward authoritative reach in the society. These leaders are generally
also committed to a broad set of goals, and a variety of interest groups within these states
make their demands known to the ruling elite. As noted above, given the competing
goals they face, these legitimacy-sensitive elites work closely with business only on some
issues and only some of the time. Since political and economic elites may often work at
cross-purposes and since the demands of numerous other groups may also require
attention, power resources of fragmented-multiclass states are often dissipated and there
is an upper limit on how rapidly they can propel industrialization. Given continuous
public scrutiny of leaders in such settings, however, there is also a lower limit on how
corrupt and ineffective the elite can get. Within these upper and lower limits, the nature
and the quality of public institutions can vary a fair amount—as can state performance.
For example, institutions like ruling political parties may be well organized, enabling
elites to prioritize their goals and pursue them consistently. Public bureaucracies may
also vary in their skills and professionalism, thus helping to account for further variation
in a state’s capacity to implement economic policies. While a variety of fragmentedmulticlass states may be politically more desirable because, even when authoritarian, they
are more responsive to the demands of their citizens, when it comes to state-led economic
development, they command limited power resources and generally tend to be middling
performers.
To sum up, SDD is a study that probes the role of the state as an economic actor
)in select developing countries by analyzing both the patterns of state construction and
the patterns of state intervention aimed at promoting industrialization and economic
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growth. For the purposes of this paper, a central message of SDD is this: success or
failure at economic development is associated more with the kind and less with the
degree of state intervention.
II.
States and Development in the Era of “Globalization”
The case for the developmental importance of states that I make in SDD is limited
in terms of both time frame and issues to which it applies: it is based mainly on
experiences prior to the neoliberal era, and the focus is more on growth than on
distributional concerns. How well might the argument apply in the context of
“globalization”? Also, what happens to the argument if the primary focus was not
growth but distributive issues? I argue below that strong states will remain essential for
negotiating the globalized world and for reconciling growth with distribution
Let us first consider the issue of ‘globalization.’ Much too much has been written
on the subject, most of it quite ideological. What are some of the main recent changes in
the global context of developing countries that might lead us to reconsider the state’s
developmental role? As far as patterns of transnational economic patterns are concerned,
scholars like Barbara Stallings (1995), Robert Wade (?), and Joseph Stiglitz (2002) have
unpacked the concept of globalization carefully; they have clarified that what has truly
changed in the era of globalization (say, post-1981) is the much greater availability and
thus the importance of finance capital. By contrast, the growth in economic interactions
across nations along such other dimensions as trade, direct foreign investment, and
technology transfers has been more incremental. The neoliberal economic claim has
been that these economic changes—whether dramatic or incremental—further necessitate
minimal states and open economies in the developing world. Unfortunately for
neoliberals, the evidence to support this claim is simply not available: the economic
performance of countries that have ardently embraced neo-liberalism over the last couple
of decades (say, in Latin America and sub-Saharan Africa) has often been less than
satisfactory; and conversely, states have remained interventionist in cases that have
grown handsomely (e.g., China, India and Vietnam).
The World Bank’s recent study (2005) is useful for getting a full sense of recent
development experiments in the “globalized” world. As the Bank documents, many
Asian economies have done rather well since 1990, but sustained high growth has eluded
much of Latin America and Africa (some exceptions are Chile, Tunisia, Botswana, and
Mauritius). The Bank is thus led to acknowledge that “some countries managed to
sustain rapid growth with just modest reforms, and others could not grow even after
implementing a wide range of reforms” (p. xii). Slow growth in OECD countries was
also not the main culprit because exports from developing countries grew rapidly during
the 1990s, real interest rates remained low, foreign investment flows were large, and debt
obligations claimed fewer resources (p. 9). The main drama of success and failure was
thus within national political economies. And this drama, according to the Bank, was not
so much “correct” or “incorrect” set of policies, as it was the institutional context within
which policies were pursued (p. 10). While the Bank shies away from advocating strong
and effective states as the key to development, it now admits that “government
discretion” will remain essential “for a wide range of activities that are essential for
sustaining growth” (p. 14).
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With the role of institutions in general—and that of the state more specifically—
remerging as central to the development discourse (Rodrik, 2006; UNCTAD, 2006),
many of the old orthodoxies are crumbling. Notice some of the more important
conclusions reached by the Bank itself: fiscal deficits may have some important dynamic
consequences (p. 11-12); trade integration can be achieved even while maintaining
relatively high rates of tariffs in the early stages of integration (p. 12); the risks of
financial integration had been under-estimated and its gains over-estimated (p. 15); and
much too much was expected from privatization (p. 20). Oh, how the world turns! One
of the Bank’s central messages by 2005 was that “different policies can yield the same
result, and the same policy can yield different results, depending on country institutional
context” (p. 12). Compare this with one of my main conclusions in SDD in 2004: “the
impact of the same policy applied in two different settings may vary because of the
varying political and institutional conditions in which economic policies are chosen and
pursued” (p. 12).
These converging conclusions across very different scholarly tendencies suggest
that improving the quality of state and other institutions will remain a precondition for
improving economic outcomes in many developing countries. Of course, we know very
little about how to improve institutional quality, but then we also know very little about
how to improve growth and well being in the developing world. What we know is that, if
you want to get on a path of sustained high growth, it is essential to create conditions that
help accumulate capital, invest capital efficiently, and that facilitate upgrading of
technology, including human capital. The role of the state will remain essential in both
diagnosing and in helping unplug varying bottlenecks that hamper capital accumulation,
efficient allocation of resources, and technological progress. If the state itself does not
function properly, some prior state reforms that require deeper political changes may well
be a precondition of sustained economic progress (Bresser-Pereira, 2007).
Is my central message then that, globalization or no globalization, states seeking
rapid growth should continue to learn from such statist success stories as that found in
East Asia? No. While the central message moves in that direction, some important
qualifications need to be added. The East Asian model (to the extent that there is even
such a thing) is neither easily emulated, nor always desirable (just notice the high
political costs many countries of that region paid and are still paying). More important,
the world has indeed changed in important ways since the likes of Park Chug Hee
presided over rapid growth; by now, state-led capital accumulation for steel and ship
building may not be easily replicated by others. Among the important global changes,
the following are especially consequential for the developing world’s efforts at deliberate
development: the pressures toward democracy make it difficult to recreate cohesivecapitalist states; norms and rules of WTO make it difficult to subsidize export promotion;
it would be foolish not to take advantage of equity capital that has become available in
global markets; the role of the service sector has been growing in most developing
country economies (Evans, 2007); prospects for a variety of South-South cooperation are
growing; and, of course, the Cold War is now but a memory, with a muscular United
States pressuring numerous developing countries to fall in line in one arena or another.
So, I am not suggesting that globalization is irrelevant. What I am suggesting instead is
that the globalization discourse creates an erroneous sense of discontinuity that needs to
13
be tempered. Let me further support this point by referring to the important example of
the recent economic rise of India.
There is nothing that many neo-liberal scholars would like more than to fit the
story of India’s economic rise as a successful example of their prescriptions. I have
argued recently, however, that such an analysis of India is quite misleading (Kohli,
2006A, 2006B, 2007A). India’s economic growth accelerated around 1980, well before
India adopted some liberalizing reforms in 1991. Over the last twenty five years India
has indeed liberalized its domestic economy and slowly opened it to the outside world.
However, India is hardly a neo-liberal model. India brought down tariffs only slowly,
limited foreign investment to certain sectors, continued to maintain fairly strict controls
on capital movements, hardly undertook much privatization, and the size of government
deficits have remained large, much too large by IMF’s standards of what is prudent.
What truly explains India’s growth acceleration then is the growing cooperation between
the Indian state and big business for growth and for controlling labor. There is more than
a shade of East Asia here. The Indian state has remained interventionist, opening some
sectors as deemed desirable (such as information technology), but regulating others (such
as automobiles), where it was deemed necessary that domestic manufacturing capacity
had to be protected against any sudden opening to either imports or to foreign investors.
While much more can be said on these issues, if growth is the main concern, India
represents a case par excellence of what a democratic developmental state might look
like in the new era of globalization.
All my comments so far have focused on the state’s role in promoting economic
growth. I am deeply aware that economic growth is not the same thing as development.
Economic growth is critical for development, including for poverty alleviation, but much
more goes into balanced development, especially more equal distribution of the fruits of
growth. So, what are the implications of the developmental state argument for distributive
issues? I am afraid the implications are uncomfortable. While both growth promotion
and redistribution require strong states, the type of state that is best suited to promote
growth may not be as suited for facilitating redistribution.
A fairly obvious point that is worth reiterating is that there is no substitute for
state action in such redistributive tasks as asset redistribution, making growth more
inclusive (e.g., employment generating), promoting investments in public education and
health, and in providing welfare nets. What types of states are most likely to pursue such
distributive goals? Based on a comparative study of Indian states, I have argued
elsewhere that well organized social-democratic states are most effective at pursuing
redistributive tasks (Kohli, 2007B). Others have made a similar argument for the
developing world as a whole, while taking into account constraints imposed by
globalization (Sandbrook, et.al., 2007). Rare though effective social-democratic states
are in the developing world, what they demonstrate is that redistribution of growth
requires mobilized lower classes and well organized parties in power that are able to
represent the interests of such classes. So, a central tension emerges: promotion of
economic growth requires right-leaning strong states, but redistribution requires strong
states of the left.
How is this tension to be resolved? While this is not easy, two comments are
necessary. First, these are not the types of tensions that are resolved by scholars or by
development practitioners. These tensions get played out instead in the world of real
14
politics. Given democracy, some periodic alternation of power between parties of the left
and the parties of the right may be the best hope to pursue both growth and redistribution,
if not simultaneously, then at least cyclically. What both types of parties will need when
they come to power, however, are well functioning states that can influence economic
outcomes. And second, one should not exaggerate the tension between the parties of the
left and the parties of the right in the post-Cold War era. Most social democratic parties
remain concerned about growth (at times too much; notice the ‘moderate left’ in Latin
America), and even parties committed to growth, such as in contemporary India, feel the
need to invest in the promotion of education and health. And yet, to continue with the
Indian example, even a commitment at the apex is not likely to lead to real changes
without improving the quality of local governments; state reform will remain a
prerequisite. .
To conclude, the discussion above has been fairly sweeping. The main point has
been to convey that states have been and are likely to remain of central importance in
facilitating growth and distribution in the developing world. Beyond such generalities,
however, it is important to get specific very quickly: the problems of growth and
distribution are very different in an India from that of Brazil, not to mention in a Nigeria.
Committed national leaders—with effective state machineries and with some room to
maneuver in a global political economy—are likely to best understand and pursue
solutions to developmental problems.
,
15
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